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JANUARY 22, 2001

F1 stake now at the center of potential major legal dispute

THOMAS HAFFA's EM.TV organization was the center of a potential major legal confrontation yesterday after Morgan Grenfell Private Equity, the London-based equity house, threatened possible action after the deal involving shares in Bernie Ecclestone's F1 holding company "went badly wrong."

According to sources referred to in Monday's Daily Telegraph newspaper, MGPE is planning to sue Haffa's company, alleging that it misrepresented its profits. Morgan Grenfell acquired a stake in EM.TV in March 200 which, at the time, was supposedly worth £250 million pounds.

In return, it handed over to EM.TV a 12.5 per cent stake in SLEC, the company which holds the Ecclestone family's F1 assets. MGPE had earlier acquired the stake from Ecclestone in 1999 for $325 million.

Morgan Grenfell now finds itself in the highly embarrassing situation of holding the baby, having lost hundreds of millions of dollars on the deal. When EM.TV's shares - quoted on Frankfurt's Neumarkt - collapsed last December after it emerged that the company had been overstating its profits, this had the secondary effect of wiping out virtually all the value of MGPE's shares.

A Morgan Grenfell source quoted by the Daily Telepgraph said;' "EM.TV should have known they weren't going to be remotely close to those numbers. There are material adverse change clauses in the sale and purchase agreements, which we are looking at using as a basis for a legal case." MGPE's stake is now reckoned to be worth around £15 million (pounds), a trifling amount compared with their original investment.

This development could further complicate the situation for EM.TV, a legal challenge hardly helping in its increasingly desperate efforts to negotiate a sale package with the Kirch media group. It is said that the proposed deal would involve Kirch injecting EM.TV with a $550 million aid transfusion, but these talks stalled before Christmas when it seems that EM.TV demanded more money for its shares in the F1 business.

The other issue that casts a cloud over EM.TV's future is that Bernie Ecclestone has the option to sell the German media group another 25 per cent of SLEC for $1 billion. It is believe that if Bernie exercises that option, it could well push EM.TV into bankruptcy.

One way out of this increasingly complex affair could be for media company Tele Munchen Group, which is 45 per cent owned by EM.TV, to make a bid for EM.TV as a whole. In that case, it is possible that MGPE, along with San Francisco-based financial dealers Hellman & Friedman - the former owners of the 37.5 per cent stake in SLEC - could purchase EM.TV's Formula One Holdings. For a knock-down price, one assumes.